UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


FORM
10-Q


(MARK
ONE)


x        QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008


OR


o         TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE TRANSITION PERIOD FROM _________TO _________


COMMISSION FILE
NUMBER: 1-13861


MED-EMERG
INTERNATIONAL INC.


(Exact
Name of Registrant as Specified in Its Charter)







PROVINCE
      OF ONTARIO, CANADA
            N/A(State
      or Other Jurisdiction of Incorporation or
    Organization)
            (IRS
      Employment Identification
No.)




6711
      Mississauga Road, Suite 404Mississauga,
      Ontario, Canada, L5N
      2W3(Address
      of Principal Executive Offices)


(905)
858-1368


(Registrant’s
telephone number, including area code)


Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x     No
o


Indicate
by check mark whether registrant is a large accelerated filer, an accelerated
filer, or a non­accelerated filer. See definition of “accelerated filer and
large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one)


Large
accelerated filer o     Accelerated
filer o     Non-accelerated
filer o     Smaller
reporting company x


Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x


As of
May 9, 2008, 58,277,696 of the registrant’s common shares were outstanding. The
aggregate market value of the shares of the issuer's common stock held by
non-affiliates was approximately $3,190,000 based on the last reported sale
price of $0.12 per share on May 9, 2008 as quoted on the OTC Bulletin
Board.


MED-EMERG
INTERNATIONAL INC.
 TABLE
OF CONTENTS







PART
      I: FINANCIAL INFORMATION
            3ITEM 1.
      CONDENSED FINANCIALSTATEMENTS
            3Consolidated
      Balance Sheets as at March 31, 2008 (Unaudited) and December 31, 2007
            4Consolidated
      Statement of Deficit for the three months ended March 31, 2008 and March
      31, 2007 (Unaudited)
            5Consolidated
      Statements of Comprehensive Income (Loss) and Accumulated Other
      Comprehensive Loss for the three months ended March 31, 2008 and March 31,
      2007 (Unaudited)
            5Consolidated
      Statement of Operations for the three months ended March 31, 2008 and
      March 31, 2007 (Unaudited)
            6Consolidated
      Statement of Cash Flows for the three months ended March 31, 2008 and
      March 31, 2007 (Unaudited)
            7Notes
      to the Unaudited Consolidated Financial Statements for the three months
      ended March 31, 2008 and March 31, 2007
            8ITEM 2:
      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF
      OPERATIONS
            24ITEM 3:
      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
            33ITEM 4:
      CONTROLS AND PROCEDURES
            33PART
      II: OTHER INFORMATION
            33ITEM
      1A. RISK FACTORS
            33ITEM 6.
      EXHIBITS
            33SIGNATURES
            34


2
  SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS


This
Quarterly Report on Form 10-Q contains forward-looking statements as defined by
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance and underlying assumptions and other statements, which are
other than statements of historical facts. These statements are subject to
uncertainties and risks including, but not limited to, product and service
demand and acceptance, changes in technology, economic conditions, the impact of
competition and pricing, government regulation, and other risks described in
this document and in other reports filed from time to time with the Securities
and Exchange Commission. All such forward-looking statements are expressly
qualified by these cautionary statements and any other cautionary statements
that may accompany the forward-looking statements. In addition, Med Emerg
International Inc. disclaims any obligations to update any forward-looking
statements to reflect events or circumstances after the date
hereof.


PART
I: FINANCIAL INFORMATION


ITEM 1. CONDENSED FINANCIAL
STATEMENTS


3
  Med-Emerg
International Inc.


Consolidated
Balance Sheets


As
at March 31, 2008 and December 31, 2007


(in
US$)







March
      31
            
            
            December
      312008
            
            
            2007ASSETS
            
            (Unaudited)Current
      assetsCash
      and cash equivalents
            
            $
            2,230,647
            
            
            $
            2,291,005Accounts
      receivable
            
            
            3,206,475
            
            
            
            3,149,967Prepaid
      expenses and other
            
            
            439,358
            
            
            
            525,978Discontinued
      operations (Note 4)
            
            
            90,703
            
            
            
            -5,967,183
            
            
            
            5,966,950Property,
      plant and equipment
            
            
            1,225,145
            
            
            
            1,314,849Goodwill
            
            
            237,596
            
            
            
            237,596Other
      intangible assets
            
            
            10,321
            
            
            
            9,152$
            7,440,245
            
            
            $
            7,528,547LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities
            
            $
            2,492,510
            
            
            $
            2,506,416Deferred
      revenue
            
            
            211,619
            
            
            
            247,189Current
      portion of long-term debt
            
            
            396,682
            
            
            
            445,026Discontinued
      operations (Note 4)
            
            
            429,962
            
            
            
            296,0073,530,773
            
            
            
            3,494,638Long-term
      liabilitiesRedeemable,
      convertible Series I Special shares (Notes 6 and
    8(a))
            
            
            3,072,052
            
            
            
            3,153,6896,602,825
            
            
            
            6,648,327Contingent
      liabilities (Note 9)SHAREHOLDERS'
      EQUITYCapital
      stock
            
            
            16,420,668
            
            
            
            16,420,668Contributed
      surplus
            
            
            3,106,792
            
            
            
            3,106,792Deficit
            
            
            (
      17,955,901
            )
            
            
            (17,949,550
            )Accumulated
      other comprehensive loss
            
            
            (734,139
            )
            
            
            (697,690
            )837,420
            
            
            
            880,220$
            7,440,245
            
            
            $
            7,528,547


The
accompanying notes are an integral part of these consolidated financial
statements.
  4


Med-Emerg
International Inc.


Consolidated
Statement of Deficit


For
the Three months Ended March 31, 2008 and 2007 (Unaudited)


(in
US$)







THREE
      MONTHS ENDEDMarch
      31
            
            
            March
      312008
            
            
            2007Balance,
      beginning of period, as previously reported
            
            $
            (17,949,550
            )
            
            $
            (17,253,951
            )Financial
      instruments - recognition and measurement
            
            
            -
            
            
            
            16,972Balance,
      beginning of period
            
            
            (17,949,550
            )
            
            
            (17,236,979
            )Net
      loss attributable to common shareholders
            
            
            (6,351
            )
            
            
            (287,226
            )Balance,
      end of period
            
            $
            (17,955,901
            )
            
            $
            (17,524,205
            )


Med-Emerg
International Inc.


Consolidated
Statements of Comprehensive Income (Loss) and Accumulated Other Comprehensive
Loss


For
the Three months Ended March 31, 2008 and 2007 (Unaudited)


(in
US$)







THREE
      MONTHS ENDEDMarch
      31
            
            
            March
      312008
            
            
            2007Net
      loss attributable to common shareholders
            
            $
            (6,351
            )
            
            $
            (287,226
            )Other
      comprehensive (loss) income
              Change
      in cumulative translation adjustment
            
            
            (36,449
            )
            
            
            7,025Comprehensive
      loss for the period, attributable to common
    shareholders
            
            $
            (42,800
            )
            
            $
            (280,201
            )Accumulated
      other comprehensive loss, beginning of period
            
            $
            (697,690
            )
            
            $
            (849,552
            )Other
      comprehensive (loss) income
            
            
            (36,449
            )
            
            
            7,025Accumulated
      other comprehensive loss, end of period
            
            $
            (734,139
            )
            
            $
            (842,527
            )


The
accompanying notes are an integral part of these consolidated financial
statements.


5
  Med-Emerg
International Inc.


Consolidated
Statement of Operations


For
the Three months Ended March 31, 2008 and 2007 (Unaudited)


(in
US$)







THREE
      MONTHS ENDEDMarch
      31
            
            
            March
      312008
            
            
            2007Revenue
            
            $
            5
      ,464,756
            
            
            $
            4,822,474Physician
      fees and other direct costs
            
            
            3
      ,711,760
            
            
            
            3,602,8141
      ,752,996
            
            
            
            1,219,660ExpensesSalaries and
      benefits
            
            
            8
      68,376
            
            
            
            728,818General
      and administration
            
            
            4
      09,744
            
            
            
            411,343Occupancy costs
      and supplies
            
            
            2
      31,344
            
            
            
            135,037Travel
      and marketing
            
            
            64,605
            
            
            
            50,105Interest
      income, net of bank charges
            
            
            (11,817
            )
            
            
            (12,775
            )Interest on
      long-term debt
            
            
            24,569
            
            
            
            29,097Amortization of
      property, plant, and equipment
            
            
            83,982
            
            
            
            47,882Interest
      expense on financial liability carried at amortized
    cost
            
            
            1,435
            
            
            
            4,7571
      ,672,238
            
            
            
            1,394,264Income
      (loss) before discontinued operations
            
            
            80,758
            
            
            
            (174,604
            )Discontinued
      operationsNet
      loss from discontinued operations (Note 4)
            
            
            (87,109
            )
            
            
            (112,622
            )Net
      loss attributable to common shareholders
            
            $
            (6,351
            )
            
            $
            (287,226
            )Net
      income (loss) per common share, basic and fully
    dilutedContinuing
      operations
            
            $
            0.001
            
            
            $
            (0.003
            )Discontinued
      operations
            
            $
            (0.001
            )
            
            $
            (0.002
            )$
            (0.000
            )
            
            $
            (0.005
            )Weighted
      average common shares and share equivalents, diluted
            
            
            58,277,696
            
            
            
            58,277,696


The
accompanying notes are an integral part of these consolidated financial
statements.


6
  Med-Emerg
International Inc.


Consolidated
Statement of Cash Flows


For
the Three months Ended March 31, 2008 and 2007 (Unaudited)


(in
US$)







THREE
      MONTHS ENDEDMarch
      31
            
            
            March
      312008
            
            
            2007Cash
      Flows from (used in) Operating ActivitiesNet
      income (loss) before discontinued operations
            
            $
            80,758
            
            
            $
            (174,604
            )Adjustments
      for:Amortization of
      property, plant and equipment
            
            
            83,982
            
            
            
            47,882Interest
      expense on financial liability carried at amortized
    cost
            
            
            1,435
            
            
            
            4,757Accretion of
      expense on Series I Shares
            
            
            27,100
            
            
            
            24,102193,275
            
            
            
            (97,863
            )Decrease in
      non-cash working capital items
            
            
            (52,251
            )
            
            
            (283,582
            )Discontinued
      operations (Note 4)
            
            
            (32,516
            )
            
            
            (176,805
            )108,508
            
            
            
            (558,250
            )Cash
      Flows from (used in) Investing ActivitiesAdditions to
      property, plant, and equipment
            
            
            (38,370
            )
            
            
            (307,429
            )Additions to
      other intangible assets
            
            
            (1,169
            )
            
            
            -(39,539
            )
            
            
            (307,429
            )Cash
      Flows from (used in) Financing ActivitiesRepayment of
      long-term debt
            
            
            (48,344
            )
            
            
            -(48,344
            )
            
            
            -Effect
      of foreign currency exchange rate changes on cash and cash
      equivalents
            
            
            (80,983
            )
            
            
            30,708Decrease
      in cash and cash equivalents
            
            
            (60,358
            )
            
            
            (834,971
            )Cash
      and cash equivalents, beginning of the period
            
            
            2,291,005
            
            
            
            4,028,128Cash
      and cash equivalents, end of the period
            
            $
            2,230,647
            
            
            $
            3,193,157


The
accompanying notes are an integral part of these consolidated financial
statements.
  7


MED-EMERG
INTERNATIONAL INC Notes to Unaudited Interim Consolidated Financial
Statements For the Three months ended March 31, 2008 and
2007


1. ORGANIZATION
AND DESCRIPTION OF BUSINESS


Med-Emerg
International Inc. (“MedEmerg or the “Company”) provides quality healthcare
solutions to the Canadian healthcare industry.


The
Company is publicly traded and listed on the OTC Bulletin Board. The Company
completed its initial public offering in February 1998.


The
Company’s operations are carried out in three units: Staffing Solutions,
Infusion Services and Pain Management Services. Prior to 2008 the Company was
also provided Healthcare Consulting Services and prior to 2005 was involved in
the Government Healthcare Services (including Department of National Defence
“DND”). See Discontinued Operations - Note 4.


For
Staffing Solutions, the Company provides emergency department physician and
nurse recruitment, staffing and administrative support services to hospitals and
federal corrections facilities, on a contractual basis, and physician and nurse
practitioners to select long-term facilities in Ontario. At March 31, 2008, the
Company had more than 40 physician and nurse staffing contracts in approximately
35 facilities across Ontario.


The
Infusion Services division provides special access RemicadeTM infusion services
to patients suffering from a variety of inflammatory disorders including Crohn’s
disease and rheumatoid arthritis, at clinic locations across
Ontario.


The
Pain Management business was launched in November 2004, when the Company
acquired a pain management clinic and commenced offering services to
Toronto-area residents who experience chronic pain. Since then, ten additional
clinics have opened.


2.
BASIS OF PRESENTATION


The
accompanying consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles (GAAP). These
consolidated financial statements consolidate the accounts of MedEmerg and all
of its wholly-owned subsidiaries: Med-Emerg Inc., Med-Emerg Elmvale Clinic Inc.,
and CPM Health Centres Inc.


Significant
intercompany accounts and transactions have been eliminated on
consolidation.


The
consolidated financial statements are expressed in U.S. dollars. Differences
between Canadian and United States accounting principles are described in note
8.


In the
opinion of management, the unaudited interim consolidated financial statements
follow the same accounting policies and methods of application as the most
recent audited annual financial statements.


Operating
results for the interim periods are not necessarily indicative of the results
that may be expected for the year ending December 31,
2008.


These
unaudited consolidated financial statements are condensed, and do not include
all disclosures required for annual financial statements, which are contained in
the notes to the Company’s audited consolidated financial statements filed as
part of the Company’s Annual Report on Form 10-K for the year ended December 31,
2007 (the “2007 Annual Report”). These unaudited consolidated financial
statements, footnote disclosures and other information should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the 2007 Annual Report.


8
  3.
SUMMARY OF SIGNIFICANT CHANGES IN ACCOUNTING POLICIES


(a)         Financial
instruments - disclosures


On
January 1, 2008, the Company adopted Section 3862, “Financial Instruments -
Disclosures” of the Canadian Institute of Chartered Accountants (“CICA”)
Handbook. This Section replaces the disclosure requirements of the previous
Section 3861 “Financial Instruments - Disclosure and Presentation”and converges with
International Financial Reporting Standard IFRS 7. The new disclosure standard
increases the emphasis on the risks associated with both recognized and
unrecognized financial instruments and how those risks are managed. The new
presentation standard carries forward the former presentation
requirements.


The
Company determined that there was no impact to its financial statement
presentation from the adoption Section 3862 of the CICA
Handbook.


(b)         Financial
instruments - presentation


On
January 1, 2008, the Company adopted Section 3863, “Financial Instruments -
Presentation” of the CICA Handbook. This Section is consistent with the previous
CICA Handbook Section 3861, “Financial Instruments - Disclosure and
Presentation” which was based on International Financial Reporting Standard IAS
32.


The
Company determined that there was no impact to its financial statement
presentation from the adoption of Section 3863 of the CICA
Handbook.


(c)         Going
concern


On
January 1, 2008, the Company adopted Section 1400, “General Standards of
Financial Statement Presentation” of the CICA Handbook. Section 1400 was amended
to include the requirements for assessing and disclosing an entity’s ability to
continue as a going concern from International Financial Reporting Standard IAS
1.


The
Company determined that there was no impact to its financial statement
presentation from the adoption of Section 1400 of the CICA
Handbook.


(d)         Capital
disclosure


On
January 1, 2008, the Company adopted Section 1535 “Capital Disclosures”, of the
CICA Handbook. This Section requires disclosure about capital and is harmonized
with recently amended International Financial Reporting Standard IAS 1. The
standard is applicable to all entities, regardless of whether they have
financial instruments. Entities are required to disclose information about its
objectives, policies and processes for managing capital, as well as its
compliance with any externally imposed capital requirements, where they may
exist.


The
Company’s disclosures now conform to this Section 1535 of the CICA
Handbook.


(e)         Future
accounting policies


(1)
Goodwill and intangible assets


In
February 2008, the CICA issued Section 3064, Goodwill and Intangible Assets,
replacing Section 3062, Goodwill and Other Intangible Assets. Various changes
have been made to other sections of the CICA Handbook for consistency purposes.
The new Section will be applicable to financial statements relating to fiscal
years beginning on or after October 1, 2008. Accordingly, the Company will adopt
the new standards for its fiscal year beginning January 1, 2009. Section 3064
establishes standards
for the recognition, measurement, presentation and disclosure of goodwill
subsequent to its initial recognition, and of intangible assets by
profit-oriented enterprises. Standards concerning goodwill are unchanged from
the standards included in the previous Section 3062. The Company is currently
evaluating the impact of the adoption of this new Section on its consolidated
financial statements. The Company does not expect that the adoption of this new
Section will have a material impact on its consolidated financial
statements.


9
  (2)
International Financial Reporting Standards


In
2006, the Canadian Accounting Standards Board (“AcSB”`) adopted its Strategic
Plan, which includes the decision to move financial reporting for Canadian
publicly accountable companies to the International Financial Reporting
Standards (“IFRSs”), as issued by the International Accounting Standards Board
(“IASB”). Under the AcSB’s plan, this new framework will be effective for fiscal
years beginning on or after January 1, 2011. Information regarding the Company’s
plan for convergence and the anticipated effects on its financial statements is
to be disclosed prior to the adoption, with the first disclosure expected to be
made in the consolidated financial statements for the year ending December 31,
2008.


4.
DISCONTINUED OPERATIONS


Family
Medical Clinics Sale


In 2003
the Company sold its Family Medical Clinic operations, comprised of 16
clinics.


Ownership
of two of the family medical clinics sold in 2003 reverted to the Company in
2005. During 2007 the Company disposed of these assets.


Government
Healthcare Services (including Department of National
Defence)


In
March of 2001, the Company was awarded an administrative management services
contract (“the Contract”), the largest of its kind, to provide medical staffing
for military bases of the Department of National Defence (“DND”) across Canada.
The Contract had an initial period of three years ending on March 31, 2004, but
it was amended and extended until March 31, 2005.


In May
2004, Public Works and Government Services Canada (“PWGSC”) re-tendered the
Contract. Med-Emerg responded to the tender proposal and its bid was one of
three considered by PWGSC (“the New Contract”). In December 2004 Med-Emerg
learned that it was not successful in its bid to win the New Contract with DND.
Its contractual relationship with the Canadian government for DND medical
staffing services ended on March 31, 2005.


Healthcare
Consulting


In
February 2008, the division was restructured and the Company decided to not
pursue further health human resource planning contracts. Accordingly the results
of the Healthcare Consulting business have been reclassified as discontinued
operations.


The
loss from discontinued operations is comprised of a loss from the Family Medical
Clinics of $1,047 (2007 - $52,042), from the DND Contract of $368 (2007 -
$4,858), and a loss from Healthcare Consulting of $85,694 (2007 -
$55,722).
  10


THREE
      MONTHS ENDEDMarch
      31
            
            
            March
      312008
            
            
            2007Revenue
            
            $
            255,953
            
            
            $
            408,815Physician
      fees and other direct costs
            
            
            28,803
            
            
            
            156,104Gross
      margin
            
            
            227,150
            
            
            
            252,711Operating,
      general and administrative expenses
            
            
            303,434
            
            
            
            358,113Amortization
            
            
            5,843
            
            
            
            5,818Interest
      and other expenses
            
            
            4
      ,982
            
            
            
            1,402Income
      from discontinued operations
            
            $
            (87,109
            )
            
            $
            (112,622
            )


Results
of discontinued operations for 2007 have been adjusted to reflect the impact of
the decision taken in February 2008 to discontinue the Healthcare Consulting
business. The adjustment had the following impact on the 2007
results:




THREE
      MONTHS
      ENDEDMarch
      31, 2007(as
      previously reported)
            
            
            (as
      adjusted)Revenue
            
            $
            160,138
            
            
            $
            408,815Physician
      fees and other direct costs
            
            
            76,837
            
            
            
            156,104Gross
      margin
            
            
            83,301
            
            
            
            252,711Operating,
      general and administrative expenses
            
            
            138,797
            
            
            
            358,113Other
      expenses
            
            
            1,404
            
            
            
            7,220Income
      from discontinued operations
            
            $
            (56,900
            )
            
            $
            (112,622
            )


The
following summarizes the Balance Sheet for discontinued operations as
at:




March
      31,
                2008
            
            
            December
      31,
                2007AssetsCurrentAccounts
      receivable
            
            $
            90,703
            
            
            $
            -LiabilitiesCurrentAccounts
      payable and accrued liabilities
            
            $
            193,965
            
            
            $
            296,007Deferred
      revenue
            
            
            235,997
            
            
            
            -429,962
            
            
            
            296,007Net
      liabilities
            
            $
            (339,259
            )
            
            $
            (
      296,007
            )


The
accounts payable and accrued liabilities pertains to the Goods and Services Tax
(“GST”) which is payable over a period of five years, as per an agreement
between the Company and the Canada Revenue Agency (“CRA”). The GST obligation
arose on revenues associated with the DND contract. An amount
of $29,266 (CDN$30,000) is payable monthly and is reviewable every six months.
The CRA has the right to register a Lien under the Personal Property Security
Act with the Province of Ontario to secure its position.


11
  5. FUTURE
INCOME TAXES


The
Company continues to fully recognize its tax benefits which are offset by a
valuation allowance to the extent that, it is not more likely than not that, the
deferred tax assets will be realized. As at March 31, 2008, the Company had
unrecognized tax benefits of approximately $2,000,000 (2007 - $2,500,000)
associated with non-capital losses carried forward and tax pools of
approximately $5,800,000 (2007 -$7,531,000) expiring in varying amounts from
2008 to 2027. In addition the Company has property, plant and equipment tax
pools in excess of the net book value totaling approximately $212,000 (2007
-$353,000) available to reduce taxable income and which are not subject to
expiry.


The
Company files federal and provincial income tax returns in Canada. The Company
is generally no longer subject to income tax examinations by provincial and
Federal tax authorities for years before 2005.


The
Company recognizes any interest accrued related to unrecognized tax benefits in
interest expense and penalties in operating expenses. During the three months
ended March 31, 2008 and 2007, there were no such interest or
penalties.


6.
REDEEMABLE, CONVERTIBLE SERIES I SPECIAL SHARES


On July
11, 2006, the Company executed definitive agreements with Calian Technologies
Ltd. for the private placement of 8,750,000 shares of the Company’s newly
designated Series I Special Shares (the “Series I Shares”) for aggregate gross
proceeds to the Company of CDN$3.5 million ($3.1 million). On July 12, 2006, the
Company received CDN$1.75 million ($1.57 million). The remainder of the funds
consisting of CDN$ 1.75 million ($1.57 million) were received by the Company as
follows: (i) the amount of CDN$0.875 million ($0.785 million) was received on
August 30, 2006, upon the filing by the Company of a registration statement
covering the resale of the Common Shares underlying the Series I Shares and the
(ii) remainder of the consideration was received on September 21, 2006, when the
registration statement was declared effective by the Securities and Exchange
Commission. The Series I Shares have a term of five
years.


The
Series I Shares are, at the option of the holder, convertible at any time into
the Company’s Common Shares, at an initial conversion rate of one Common Share
for each Series I Share, subject to adjustment in the event of certain capital
adjustments or similar transactions, such as a stock split or merger. Commencing
on the second anniversary of issuance, the Company is entitled to require the
conversion of outstanding Series I Shares at the applicable conversion rate,
provided that the following conditions are satisfied: (i) the volume weighted
average trading price (VWAP) of the Company’s Common Share on the principal
exchange or market (including the OTC Bulletin Board) on which the Common Shares
are traded or quoted is greater than or equal to $0.46 (as may be adjusted in
respect of any stock split) during any 60 consecutive calendar day period, (ii)
the total volume of Common Shares traded over such period exceeds 600,000 shares
(as adjusted to reflect any stock splits), and (iii) the Company delivers
written notice of such conversion to the holders of the Series I Shares within
10 days of the satisfaction of the above conditions. The Company's right to
require such conversion is further subject to there being an effective
registration statement at the time covering the resale of the Common Shares
underlying the Series I Shares. If not converted into Common Shares prior to the
fifth anniversary of issuance, the Series I Shares are automatically redeemable
at the sole discretion of the Company in either (a) cash at a rate of $0.45 per
share or (b) in Common Shares of the Company based on the VWAP of the Common
Shares of the Company during the sixty (60) consecutive calendar day period
immediately preceding the fifth anniversary. In the event of a change in
control, the Series I Shares are also required to be redeemed in cash at a rate
of $0.45 per share. The mandatory redemption and conversion features of the
Series I Shares result in the classification of separate liability and equity
components of the Series I Shares.


12
  The
Series I Shares have been accounted for as a compound financial instrument
consisting of both a financial liability and equity component. The proceeds of
the Series I Shares were allocated to the two components based on the present
value of the future redemption value of the Series I Shares, discounted at a
reasonable rate of return, considering the terms of the investment that could be
earned by the holder of the Series I Shares.


7. RELATED
PARTY TRANSACTIONS


There
were no related party transactions during the period and there are no related
party balances outstanding at March 31, 2008 or December 31, 2007. Transactions,
when incurred, are recorded at their exchange amount which is the amount agreed
to by the related parties.


8. CANADIAN
AND UNITED STATES ACCOUNTING POLICY DIFFERENCES


Those
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada (“Canadian GAAP”) which, in
most respects, conforms to accounting principles generally accepted in the
United States of America (“U.S. GAAP”). The significant differences in those
principles, as they apply to the Company’s balance sheets, statements of
operations, comprehensive income (loss), accumulated other comprehensive income
(loss), and cash flows, are described below.


Reconciliation
of Net Earnings under Canadian GAAP to US GAAP




March
      31
            
            
            March
      312008
            
            
            2007Net
      loss - Canadian GAAP
            
            $
            (6,351
            )
            
            $
            (
      287,226
            )Impact
      of accretion expense (Note 8(a))
            
            
            2
      7,100
            
            
            
            24,102Interest
      expense on financial liability carried at amortized cost (Note
      8(e))
            
            
            1
      ,435
            
            
            
            4,757Net
      income (loss) - U.S. GAAP
            
            $
            22,184
            
            
            $
            (258,367
            )




13




Consolidated
      Statement of Earnings - U.S. GAAPMarch
      31
            
            
            March
      312008
            
            
            2007Revenue
            
            $
            5,464,756
            
            
            $
            4,822,474Physician
      fees and other direct costs
            
            
            3,711,760
            
            
            
            3,602,8141,752,996
            
            
            
            1,219,660ExpensesSalaries and
      benefits
            
            
            868,376
            
            
            
            728,818General
      and administration
            
            
            409,744
            
            
            
            411,343Occupancy costs
      and supplies
            
            
            231,344
            
            
            
            135,037Travel
      and marketing
            
            
            64,605
            
            
            
            50,105Interest
      (income) expense, net of bank charges
            
            
            (11,817
            )
            
            
            (12,775
            )Interest on
      long-term debt
            
            
            (2,531
            )
            
            
            4,995Amortization of
      property, plant, and equipment
            
            
            83,982
            
            
            
            47,8821,643,703
            
            
            
            1,365,405Income
      (loss) before discontinued operations
            
            
            109,293
            
            
            
            (145,745
            )Net
      loss from discontinued operations
            
            
            (87,109
            )
            
            
            (112,622
            )Net
      income (loss) attributable to common shareholders - U.S.
      GAAP
            
            $
            22,184
            
            
            $
            (258,367
            )Net
      income (loss) per share, basic and diluted - U.S.
    GAAPContinuing
      operations
            
            $
            0.002
            
            
            $
            (0.003
            )Discontinued
      operations
            
            $
            (0.001
            )
            
            $
            (0.002
            )No.
      of shares outstanding
            
            
            58,277,696
            
            
            
            58,277,696




Consolidated
      Statement of Comprehensive Income (loss) - U.S. GAAP
            
            March
      31
            
            
            March
      312008
            
            
            2007Net
      income (loss) - U.S. GAAP
            
            
            22,184
            
            
            
            (
      258,367
            )Foreign
      currency translation adjustment
            
            
            (137,253
            )
            
            
            7,025Comprehensive
      loss
            
            $
            (115,069
            )
            
            $
            (251,342
            )


Consolidated
Statement of Accumulated Other Comprehensive Income (loss) - U.S.
GAAP




Accumulated
      other comprehensive loss, beginning of period
            
            $
            (317,979
            )
            
            $
            (
      792,888
            )Other
      comprehensive (loss) income
            
            
            (137,253
            )
            
            
            7,025Accumulated
      other comprehensive loss, end of period
            
            $
            (455,232
            )
            
            $
            (785,863
            )


14
  Consolidated
Balance Sheets




As
      At March 31, 2008
            
            
            As
      At December
      31, 2007As
      reported
            
            
            U.S.
      GAAP
            
            
            As reported
            
            
            U.S.
      GAAPCurrent
      assetsCash
            
            $
            2,230,647
            
            
            $
            2,230,647
            
            
            $
            2,291,005
            
            
            $
            2,291,005Accounts
      receivable
            
            
            3,206,475
            
            
            
            3,206,475
            
            
            
            3,149,967
            
            
            
            3,149,967Prepaid
      expenses and other
            
            
            439,358
            
            
            
            439,358
            
            
            
            525,978
            
            
            
            525,978Discontinued
      operations
            
            
            90,703
            
            
            
            90,703
            
            
            
            -
            
            
            
            -5,967,183
            
            
            
            5,967,183
            
            
            
            5,966,950
            
            
            
            5,966,950Property,
      plant and equipment
            
            
            1,225,145
            
            
            
            1,225,145
            
            
            
            1,314,849
            
            
            
            1,314,849Goodwill
            
            
            237,596
            
            
            
            237,596
            
            
            
            237,596
            
            
            
            237,596Other
      intangible assets
            
            
            10,321
            
            
            
            10,321
            
            
            
            9,152
            
            
            
            9,152$
            7,440,245
            
            
            $
            7,440,245
            
            
            $
            7,528,547
            
            
            $
            7,528,547LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable and accrued liabilities (Note 8(e))
            
            $
            2
      ,492,510
            
            
            $
            2,493,945
            
            
            $
            2,506,416
            
            
            $
            2,507,665Deferred
      revenue
            
            
            211,619
            
            
            
            211,619
            
            
            
            247,189
            
            
            
            247,189Current
      portion of long-term debt
            
            
            396,682
            
            
            
            396,682
            
            
            
            445,026
            
            
            
            445,026Discontinued
      operations
            
            
            429,962
            
            
            
            429,962
            
            
            
            296,007
            
            
            
            296,0073,530,773
            
            
            
            3,532,208
            
            
            
            3,494,638
            
            
            
            3,495,887Long-term
      liabilitiesRedeemable,
      convertible Series I Special shares (Note 8(a))
            
            
            3
      ,072,052
            
            
            
            -
            
            
            
            3,153,689
            
            
            
            -3,072,052
            
            
            
            -
            
            
            
            3,153,689
            
            
            
            -6,602,825
            
            
            
            3,532,208
            
            
            
            6,648,327
            
            
            
            3,495,887Series
      1 Special Shares (Note 8(a))
            
            
            -
            
            
            
            3,106,475
            
            
            
            -
            
            
            
            3,106,475SHAREHOLDERS'
      EQUITYCapital
      stock (Notes 8 (a, b, c))
            
            
            1
      6,420,668
            
            
            
            16,990,091
            
            
            
            16,420,668
            
            
            
            16,990,091Contributed
      surplus (Note 8 ( c ))
            
            
            3,106,792
            
            
            
            3,143,198
            
            
            
            3,106,792
            
            
            
            3,143,198Deficit
      (Notes 8 (a, b, e))
            
            
            (17,955,901
            )
            
            
            (18,876,495
            )
            
            
            (17,949,550
            )
            
            
            (18,889,125
            )Accumulated
      other comprehensive loss (Note 8 (f))
            
            
            (734,139
            )
            
            
            (455,232
            )
            
            
            (697,690
            )
            
            
            (317,979
            )837,420
            
            
            
            801,562
            
            
            
            880,220
            
            
            
            926,185$
            7,440,245
            
            
            $
            7,440,245
            
            
            $
            7,528,547
            
            
            $
            7,528,547


15
  Consolidated
Statement of Cash Flows


March
      31
            
            
            March
      312008
            
            
            2007Operating
      activitiesNet
      income (loss) before discontinued operations
            
            $
            109,293
            
            
            $
            (145,745
            )Adjustments
      for:Amortization of
      property, plant and equipment
            
            
            83,982
            
            
            
            47,882193,275
            
            
            
            (97,863
            )Decrease in
      non-cash working capital components
            
            
            (52,251
            )
            
            
            (283,582
            )Discontinued
      operations
            
            
            (32,516
            )
            
            
            (176,805
            )108,508
            
            
            
            (558,250
            )Cash
      Flows used in Investing ActivitiesAdditions to
      property, plant, and equipment
            
            
            (38,370
            )
            
            
            (307,429
            )Additions to
      other intangible assets
            
            
            (1,169
            )
            
            
            -(39,539
            )
            
            
            (307,429
            )Cash
      Flows used in Financing ActivitiesRepayment of
      long-term debt
            
            
            (48,344
            )
            
            
            -(48,344
            )
            
            
            -Effect
      of foreign currency exchange rate changes on cash and cash
      equivalents
            
            
            (80,983
            )
            
            
            30,708Decrease
      in cash and cash equivalents
            
            
            (60,358
            )
            
            
            (834,971
            )Cash
      and cash equivalents, beginning of the period
            
            
            2
      ,291,005
            
            
            
            4,028,128Cash
      and cash equivalents, end of the period
            
            $
            2,230,647
            
            
            $
            3,193,157


(a)        Redeemable,
convertible Series 1 Special Shares


The
Series I Shares are accounted for as a compound financial instrument comprising
both a financial liability and equity under Canadian GAAP, because of their
underlying terms and conditions, which include a mandatory redemption feature.
Under U.S. GAAP, EITF Abstract Topic D-98 Classification andMeasurement of Redeemable Securitiesrecommends that shares that are redeemable for cash based on an
occurrence of events outside of the control of the company should be classified
outside of shareholders’ equity. The Series I Shares, which are redeemable for
cash in the event of a change in control, are presented outside of shareholders’
equity for U.S. GAAP purposes. At this time it is management’s intention to
redeem the Series I Shares through the issuance of common
shares.


As a
result of accounting for the Series 1 Shares as a compound financial instrument
under Canadian GAAP, the liability component is accreted to the face value of
the shares over the five year period to maturity. As the Series 1 Shares are not
a liability for U.S. GAAP purposes the accretion expense charged to net income
for the period under Canadian GAAP is reversed for U.S. GAAP purposes.
Furthermore, since under U.S. GAAP the Series 1 Shares are “quasi-equity” the
face value is adjusted to the initial U.S. dollar value on issuance and the
foreign currency translation adjustment recorded under Canadian GAAP relating to
the liability component is reversed for U.S. GAAP
purposes.


16
  The
reconciliation of Canadian to U.S. GAAP for the Series 1 Shares is as
follows:


March
      31
            
            
            December
      312008
            
            
            2007Liability
      portion of redeemable, convertible Series 1 Shares - Canadian
      GAAP
            
            $
            3,072,053
            
            
            $
            3
      ,153,689Impact
      of accretion expense
            
            
            (168,714
            )
            
            
            (149,546
            )Equity
      portion of redeemable, convertible Series 1 Shares
            
            
            482,043
            
            
            
            482,043Translation
      adjustment attributable to Series 1 Shares
            
            
            (278,907
            )
            
            
            (379,711
            )Series
      1 Shares - U.S. GAAP
            
            $
            3
      ,106,475
            
            
            $
            3,106,475


(b)           Share
capital, goodwill and correction of prior period error


Under
Canadian GAAP, the purchase price of an acquisition is determined based on the
share price on the date the transaction is consummated. Under U.S. GAAP, the
purchase price of an acquisition where shares are issued is determined based on
the share price for the period surrounding the announcement date of the
acquisition. The share price used for the YFMC Healthcare Inc. acquisition in
1999 under Canadian GAAP was $1.25. The share price used for the YFMC Healthcare
Inc. acquisition under U.S. GAAP was $1.859. The difference was allocated to
goodwill at that time and, subsequently, the goodwill was impaired and
written-off.


(c)           Stock
purchase warrants


Under
U.S. GAAP, detachable stock purchase warrants are given separate recognition
from the primary security issued. Upon initial recognition, the carrying amount
of the two securities is allocated based on the relative fair values at the date
of issuance. Under Canadian GAAP, the detachable stock purchase warrants issued
in conjunction with the private stock offering on January 22, 1996 and
subsequently surrendered, have been given no recognition in the consolidated
financial statements. Under U.S. GAAP, based on an ascribed fair value of $0.364
for each of the 1,000,000 share purchase warrants issued, share capital would be
lower by $36,406 and, given that the share purchase warrants were cancelled, the
carrying amount of contributed surplus would be increased by
$36,406.


(d)           Accounting
for income taxes


On
January 1, 2007, the Company adopted the provisions of Financial Accounting
Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (“FIN 48”), an interpretation of FASB Statement No. 109,
“Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. The interpretation
requires that the Company recognize the impact of a tax position in the
financial statements if that position is more likely than not to be sustained on
audit, based on the technical merits of the position. FIN 48 also provides
guidance on de-recognition, classification, interest and penalties, accounting
in interim periods and disclosure. In accordance with the provisions of FIN 48,
any cumulative effect resulting from the change in accounting principle is to be
recorded as an adjustment to the opening balance of deficit. The adoption of FIN
48 did not result in a material impact on the Company’s financial position or
results of operations.


Under
U.S. GAAP enacted tax rates are used to calculate deferred taxes, whereas
Canadian GAAP uses substantively enacted tax rates. The future income tax
adjustments included in the reconciliation of net earnings under Canadian GAAP
to U.S. GAAP and the balance sheet effects include the effect of such
rate-differences, if any, as well as the tax effect of the other reconciling
items noted.


(e)           Financial
instruments - recognition and measurement


On
January 1, 2007, the Company adopted Section 3855 of the Canadian Institute of
Chartered Accountants’ (“CICA”) Handbook, “Financial Instruments - Recognition
and Measurement”. It describes the standards for recognizing and measuring
financial instruments in the balance sheet and the standards for reporting gains
and losses in the financial statements. Financial assets available for sale,
assets and liabilities
held for trading and derivative financial instruments, whether part of a hedging
relationship or not, have to be measured at fair value. The adoption of this
Section was done retroactively without restatement of the consolidated financial
statements of prior periods. As at January 1, 2007, the impact on the
consolidated balance sheet of measuring the financial assets and liabilities
using the effective interest rate method was a decrease in accounts payable and
opening deficit of $16,972, of which $1,914 was amortized to earnings during the
three months ended March 31, 2008 (2007 - $4,757). U.S. GAAP does not require a
similar measurement of financial instruments.


17
  (f)
Comprehensive loss


Statement
of Financial Accounting Standards No. 130, “Reporting Comprehensive Income”
(SFAS 130), establishes standards for reporting and display of comprehensive
income and its components in the consolidated financial statements. Under U.S.
GAAP the foreign currency translation adjustment recorded for the period and
included in the cumulative translation adjustment in shareholders’ equity is
included in comprehensive income (loss). The foreign currency translation
adjustments are not currently adjusted for income taxes. The company is situated
in Canada, and the foreign currency translation adjustments relate to the
translation of the consolidated financial statements from Canadian dollars into
United States dollars, solely for the convenience of the
readers.


The
effect of these accounting differences on capital stock, contributed surplus,
deficit and cumulative translation adjustment are as follows:




March
      31
            
            
            December
      312008
            
            
            2007Capital
      stock - Canadian GAAP
            
            $
            16,420,668
            
            
            $
            16,420,668Capital
      stock issued on purchase of YFMC Healthcare Inc. (Note
      8(b))
            
            
            1
      ,087,872
            
            
            
            1,087,872Ascribed
      fair value of share purchase warrants issued (Note 8( c
      ))
            
            
            (36,406
            )
            
            
            (36,406
            )Equity
      portion of redeemable Series I Shares (Note 8(a))
            
            
            (482,043
            )
            
            
            (482,043
            )Capital
      stock - U.S. GAAP
            
            $
            16,990,091
            
            
            $
            16,990,091Contributed
      surplus - Canadian GAAP
            
            $
            3,106,792
            
            
            $
            3,106,792Share
      purchase warrants (Note 8( c ))
            
            
            36,406
            
            
            
            36,406Contributed
      surplus - U.S. GAAP
            
            $
            3,143,198
            
            
            $
            3,143,198Deficit
      - Canadian GAAP
            
            $
            (17,955,901
            )
            
            $
            (17,949,550
            )Write-off
      of goodwill on purchase of YFMC Healthcare Inc. (Note
      8(b))
            
            
            (1,087,872
            )
            
            
            (1,087,872
            )Impact
      of accretion expense (Note 8(a))
            
            
            168,714
            
            
            
            149,545Financial
      instruments - recognition and measurement (Note 8
    (e))
            
            
            -
            
            
            
            (16,972
            )Interest
      expense on financial liability carried at amortized cost (Note 8
      (a))
            
            
            (1,436
            )
            
            
            15,724Deficit
      - U.S. GAAP
            
            $
            (18,876,495
            )
            
            $
            (18,889,125
            )Cumulative
      translation adjustment - Canadian GAAP
            
            $
            (734,139
            )
            
            $
            (697,690
            )Translation
      adjustment attributable to Series I Shares (Note
    8(a))
            
            
            278,907
            
            
            
            379,711Cumulative
      translation adjustment - U.S. GAAP
            
            $
            (455,232
            )
            
            $
            (317,979
            )Shareholders'
      equity - U.S. GAAP
            
            $
            801,562
            
            
            $
            926,185


Recently
Issued Accounting Pronouncements


In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" which is
effective for fiscal years beginning after November 15, 2007 and for interim
periods within those years. This statement defines fair value, establishes a
framework for measuring fair value and expands the related disclosure
requirements. The adoption of this statement, with respect to financial assets,
did not have a material impact on the financial statements of the Company. In
February 2008, the FASB issued FSP 157-2, which extends the effective date for adoption
for non-financial assets, to fiscal years beginning after November 15, 2008 and
interim periods within those fiscal years. The Company does not expect the
adoption of this standard will have a material impact on its financial
statements.


18
  In
December 2007, the FASB issued FASB No. 141R, Business Combinations(FASB
141R), which replaces FASB 141. FASB 141R applies to all transactions or other
events in which an entity obtains control of one or more businesses and requires
that all assets and liabilities of an acquired business as well as any
non-controlling interest in the acquiree be recorded at their fair values at the
acquisition date. Contingent consideration arrangements will be recognized at
their acquisition date fair values, with subsequent changes in fair value
generally reflected in earnings. Pre-acquisition contingencies will also
typically be recognized at their acquisition date fair values. In subsequent
periods, contingent liabilities will be measured at the higher of their
acquisition date fair values or the estimated amounts to be realized. The
Statement is effective for business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2008. The Company expects that FASB 141R could have an
impact on its future consolidated financial statements when effective, but the
nature and magnitude of the specific effects will depend upon the nature, terms
and size of the acquisitions consummated after the effective date of FASB No.
141R.


In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” This standard provides companies
with an option to report selected financial assets and liabilities at fair
value. The Standard’s objective is to reduce both complexity in accounting for
financial instruments and the volatility in earnings caused by measuring related
assets and liabilities differently. This standard also establishes presentation
and disclosure requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar types of assets and
liabilities. This Statement is effective as of the beginning of an entity’s
first fiscal year beginning after November 15, 2007. Adoption on January 1, 2008
did not have a material effect on the Company since the Company did not elect to
measure any financial assets or liabilities at fair
value.


In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“FAS 160”). FAS 160 establishes accounting
and reporting standards that require the ownership interests in subsidiaries
held by parties other than the parent be clearly identified, labelled, and
presented in the consolidated statement of financial position within equity, but
separate from the parent’s equity; the amount of consolidated net income
attributable to the parent and to the noncontrolling interest be clearly
identified and presented on the face of the consolidated statement of income;
changes in a parent’s ownership interest while the parent retains its
controlling financial interest in its subsidiary be accounted for consistently;
when a subsidiary is deconsolidated, any retained noncontrolling equity
investment in the former subsidiary be initially measured at fair value; and
entities provide sufficient disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners. The objective of the guidance is to improve the relevance,
comparability, and transparency of the financial information that a reporting
entity provides in its consolidated financial statements. FAS 160 is effective
for fiscal years beginning on or after December 15, 2008. The Company does not
expect this standard to have a significant impact on its financial statements
upon adoption.


In
March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires enhanced
disclosures about an entity’s derivative and hedging activities and thereby
improves the transparency of financial reporting. The objective of the guidance
is to provide users of financial statements with an enhanced understanding of
how and why an entity uses derivative instruments; how derivative instruments
and related hedged items are accounted for; and how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance, and cash flows. FAS 161 is effective for fiscal years beginning
after November 15, 2008. The Company does not expect this standard to have a
significant impact on its financial statements upon
adoption.


19
 9.
CONTINGENT LIABILITIES


(i)           
There is uncertainty with respect to the Company’s liability for Goods and
Services Tax pertaining to
certain services that it previously provided. The measurement of this
uncertainty is not determinable and management is of the view that it is not
probable a liability will be confirmed. No amount has been provided in these
consolidated financial statements.


(ii)           There
is uncertainty with respect to the Company’s liability arising from a
contractual dispute with a third
party. The potential costs to the Company associated with this dispute range
from $nil to $1.3 million. The Company is of the view that it is not probable
that the Company will be found liable for these costs. No amount has been
provided in these consolidated financial statements.


(iii)          Claims
have been made against the Company for unspecified damages in regards to a claim
for wrongful dismissal and breach of contract. The Company is of the view that
liability, if any, would be the responsibility of a third party contractor and
if damages were found, they would not be material in light of the current law.
Since management is of the opinion that the claim is unlikely to succeed, no
provision has been made in respect thereof in these consolidated financial
statements. No amount has been provided in these consolidated financial
statements.
  (iv)          The
Company sub-leased certain premises to third parties when it disposed of its
clinic operations. In case of payment defaults by the third parties, the Company
could be held liable for rent on these premises. Rent for these premises over
the next seven years, during the respective lease terms, totals
$770,000.


(v)          
The Company is party to various claims and legal proceedings arising in the
normal course of business.
While claims and litigation are subject to inherent uncertainties, management
currently believes that the ultimate outcome of claims and proceedings,
individually and in the aggregate, will not have a material adverse effect on
our consolidated financial condition, results of operation or cash
flows.


Any
liability resulting from the above will be reflected as a charge to income in
the year the liability, if any, is confirmed.


20
  10.
CAPITAL DISCLOSURES


The
following are the contractual maturities of financial liabilities as at March
31, 2008:




Carrying
            
            
            Contractual
            
            
            0
      to 12
            
            
            12
      to 24
            
            
            24
      to 48Amount
            
            
            Cash
      Flows
            
            
            Months
            
            
            Months
            
            
            MonthsAccounts
      payable and accrued liabilities
            
            $
            2
      ,492,510
            
            
            $
            2,493,504
            
            
            $
            2,493,504
            
            
            $
            -
            
            
            $
            -Deferred
      revenue
            
            
            211,619
            
            
            
            211,619
            
            
            
            211,619
            
            
            
            -
            
            
            
            -Long-term
      debt
            
            
            396,682
            
            
            
            396,682
            
            
            
            396,682
            
            
            
            -
            
            
            
            -Discontinued
      operations
            
            
            4
      29,962
            
            
            
            429,962
            
            
            
            429,962
            
            
            
            -
            
            
            
            -Series
      I Shares
            
            
            3,072,052
            
            
            
            3,106,475
            
            
            
            -
            
            
            
            -
            
            
            
            3,106,475$
            6,602,825
            
            
            $
            6,638,242
            
            
            $
            3,531,767
            
            
            $
            -
            
            
            $
            3,106,475


The
Company’s objectives when managing capital are:


1.      To
safeguard the Company’s ability to obtain financing should the need
arise;


2.      To
provide an adequate return to its shareholders; 3.      To
maintain financial flexibility in order to enhance the access to capital in the
event of future acquisitions.





The
Company defines its capital as follows:


1.      Shareholders’
equity;


2.      Series
I special shares;


3.      Long-term
debt including current portion;


4.      Discontinued
operations;


5.      Deferred
revenue including the current portion;


6.      Cash
and temporary investments.


The
Company’s financial strategy is designed and formulated to maintain a flexible
capital structure consistent with the objectives stated above and to respond to
changes in economic conditions and the risk characteristics of the underlying
assets. The Company has limited its investments to short and mid­term assets
to ensure their liquidity matches its operational
requirements.


The
Company monitors its capital on the basis of its net debt to adjusted capital
ratio. The ratios at March 31, 2008 and December 31, 2007
were:




March
      31 2008
            
            
            December
      31 2007Total
      debt
            
            $
            3,530,773
            
            
            $
            3,494,638Less:
      cash and cash equivalents
            
            
            2
      ,230,647
            
            
            
            2,291,005Net
      debt
            
            $
            1,300,126
            
            
            $
            1,203,633Total
      equity
            
            $
            837,420
            
            
            $
            880,220Add:
      series I special shares
            
            
            3,072,052
            
            
            
            3,153,689Adjusted
      capital
            
            $
            3,909,472
            
            
            $
            4,033,909Net
      debt to adjusted capital ratio
            
            
            0.33
            
            
            
            0.30


The
increase in the net debt to adjusted capital ratio is the result of the loss
incurred in the quarter. The change in the ratio is not considered significant
by Management.


21
  11.
SEGMENTED INFORMATION


The
Company operates under three business units: Staffing Solutions, Pain Management
Services, and Infusion Services. Results for continuing operations for 2007 have
been adjusted to reflect the impact of the decision taken in February 2008 to
discontinue the Healthcare Consulting business - Note 4.


The
segmented information for the business units are as
follows:




THREE
      MONTHS ENDEDMarch
      31
            
            
            March
      312008
            
            
            2007RevenueStaffing
      solutions
            
            $
            1,779,112
            
            
            $
            2,737,272Pain
      management services
            
            
            2,360,398
            
            
            
            1,180,542Infusion
      services
            
            
            1,325,246
            
            
            
            904,6605,464,756
            
            
            
            4,822,474Gross
      marginStaffing
      solutions
            
            
            339,568
            
            
            
            402,992Pain
      management services
            
            
            667,077
            
            
            
            328,595Infusion
      services
            
            
            746,351
            
            
            
            488,0731,752,996
            
            
            
            1,219,660Operating
      expensesStaffing
      solutions
            
            
            330,165
            
            
            
            429,657Pain
      management services
            
            
            867,813
            
            
            
            562,286Infusion
      services
            
            
            376,091
            
            
            
            333,3601,574,069
            
            
            
            1,325,303Divisional
      income (loss)Staffing
      solutions
            
            
            9,403
            
            
            
            (26,665
            )Pain
      management services
            
            
            (200,736
            )
            
            
            (233,691
            )Infusion
      services
            
            
            370,260
            
            
            
            154,713178,927
            
            
            
            (105,643
            )Other
      general expensesInterest
      income, net of bank charges
            
            
            (11,817
            )
            
            
            (12,775
            )Interest on
      long-term debt
            
            
            24,569
            
            
            
            29,097Amortization of
      property, plant and equipment
            
            
            83,982
            
            
            
            47,882Interest
      expense on financial liability carried at amortized
    cost
            
            
            1,435
            
            
            
            4,75798,169
            
            
            
            68,961Income
      (loss) from continuing operations
            
            $
            80,758
            
            
            $
            (174,603
            )


12.
ECONOMIC DEPENDENCE


The
Company derived approximately 24% of its revenue for the three month period
ended March 31, 2008 (2007 - 18%) from services provided under its contract with
Schering-Plough Canada Inc. (“Schering”), and as such is subject to
concentration risk associated with the continuation of its contract with
Schering.


22
  13.
COMPARATIVE FIGURES


Certain
figures in the 2007 consolidated financial statements have been reclassified to
conform with the basis of presentation in 2008. The results for Healthcare
Consulting which were reported as part of Continuing Operations in 2007 have
been reclassified as Discontinued Operations (Note 4).


23
  ITEM 2: MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF
OPERATIONS


THE
FOLLOWING COMMENTARY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED ELSEWHERE IN THIS FORM 10-Q.
THE DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THESE STATEMENTS RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL
PERFORMANCE. IN SOME CASES, YOU CAN IDENTIFY THESE FORWARD-LOOKING STATEMENTS BY
TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECT," "PLAN," "ANTICIPATE,"
"BELIEVE," "ESTIMATE," "PREDICT," "POTENTIAL," "INTEND," OR "CONTINUE," AND
SIMILAR EXPRESSIONS. THESE STATEMENTS ARE ONLY PREDICTIONS. OUR ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS
AS A RESULT OF A VARIETY OF FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET
FORTH UNDER PART II, ITEM 1.A "RISK FACTORS" AND ELSEWHERE IN THIS FORM
10-Q.


Certain
prior year information has been reclassified to conform to the current year’s
presentation including the reclassification of the Company’s Government
Healthcare Services operations to discontinued operations.


BUSINESS
OVERVIEW


The
Company’s operations are comprised of three business units: Staffing Solutions,
Pain Management Services and Infusion Services. Prior to 2008 the Company also
provided Healthcare Consulting Services. These operations were wound-down in the
first quarter of 2008. During the three month period ended March 31, 2008, 33%
of the Company’s revenue was generated by the Staffing Solutions unit; 43% by
the Pain Management unit; and 24% by the Infusion Services unit. From a Gross
Margin perspective, the contribution was 19%, 38% and 43%,
respectively.


The
Company is well positioned to deal with the continuous challenges that confront
the Canadian healthcare system. Some of these challenges including the growing
shortage of ER doctors, longer waiting times by patients to access chronic pain
specialists, and the growing cost of public medicine, play directly into the
Company’s strengths.


The
Company’s Staffing Solutions provide physician and nurse practitioner staffing
services to more than 30 healthcare facilities across Ontario, including rural
and urban hospitals as well as tertiary care centers and corrections
facilities.


MedEmerg’s
Pain Management Services business provides chronic pain management in 11 centers
in Ontario and Nova Scotia, Canada.


The
Company’s Infusion Services business provides intravenous infusion services for
pharmaceutical companies in 25 community-based clinics in Ontario,
Canada.


MedEmerg
was founded in 1983 and is incorporated under the Business Corporations Act
(Ontario).


The
Company tracks its operations by monitoring certain key performance indicators.
For Staffing Solutions, the Company monitors the number of contracts under
administration, monthly shifts booked and gross margin per contract. For Pain
Management the Company tracks the number of patient referrals, the number of
patient visits and average billing per patient. For Infusion Services the
Company tracks the number of infusions per month and the utilization of each
infusion center. Certain key balance sheet ratios such as working capital are
also monitored, to track the cash flow situation.


24
  The
Staffing Solutions business is driven by the Company’s ability to recruit and
retain physicians and nurse practitioners. With the chronic shortage of
healthcare providers, the Company dedicates considerable resources to attracting
new providers to the Company. Because of the limited supply of healthcare
providers, the inability to attract additional personnel could limit the
Company’s ability to fill open shifts and to continue its revenue
growth.


Growth
of the Company’s Pain Management Services business is dependent on its ability
to recruit additional doctors to provide pain therapies and to develop the trust
of referring physicians, who refer their patients to the Company’s pain
centers.


The
Infusion Services business is reliant upon the Company’s ability to introduce
new drug therapies through its infusion clinics and by expanding the number of
clinic locations. Failure to succeed with either of these initiatives will limit
the Company’s ability to drive its revenue growth.


STAFFING
SOLUTIONS


MedEmerg
is the leading provider of ER doctors to Ontario hospitals. The Company provides
physician-staffing services to more than 30 healthcare facilities across
Ontario, including rural and urban hospitals as well as tertiary care centers
and corrections facilities. The Company believes that on-going physician
shortages and continuing demand for improved levels of care will continue to
drive its Staffing Solutions business.


In
addition to its conventional ER staffing, MedEmerg has developed a unique
integrated staffing solution, which was trialed in 1996 to recruit primary care
practitioners into mental health facilities. Based on patient population, the
nature of the cases being treated, and the total cost of the current system,
MedEmerg introduced a healthcare model combining Primary Care Physicians with
Primary Care Nurse Practitioners. This was the first time a nurse practitioner
function was introduced into a mental health setting. The program, now in its
eleventh year of operation, has received high satisfaction ratings from both
staff and patients, resulting in one of the Company’s clients receiving the ACE
award from the Ministry of Health for Innovation in Health Care Delivery Design.
In June 2002, the Centre for Addiction and Mental Health in Toronto, Canada,
awarded MedEmerg a similar contract for primary care services. In 2004, the
Company introduced Primary Health Care Nurse Practitioners to its mix of
healthcare providers in community-based hospitals.


In
September 2006, the Company recruited Dr. Jim Ducharme to lead the clinical
aspect of Staffing Solutions. Dr. Ducharme is a nationally recognized emergency
medicine specialist and is a past president of the Canadian Association of
Emergency Physicians. Dr. Ducharme brings a very broad perspective of the
challenges facing emergency departments today and he is an important asset in
the Company’s future growth of the Staffing Solutions business. Dr Ducharme was
instrumental in the Company’s development of a training program designed for
Ontario’s family physicians. In concert with the College of Family Physicians,
MedEmerg developed and hosted training sessions designed to re-introduce family
physicians to the ER. The program was well received and it is anticipated that
future training opportunities will arise in 2008. Concurrent with the addition
of Dr. Ducharme, the division was realigned to expand its business development
capabilities in anticipation of increased staffing
opportunities.


PAIN MANAGEMENT
SERVICES


MedEmerg’s
chronic pain management service, operated through its wholly-owned subsidiary,
CPM Health Centres Inc. (“CPM”), was launched in November 2004 with the
acquisition of the Scarborough Pain Clinic. Since then, 10 more clinics have
been opened, most recently in Brampton, Ontario in January,
2008.


25
  CPM has
developed a standardized approach to the treatment of chronic pain, using an
integrated multi-disciplinary approach including anesthetists and ER physicians,
amongst others.


In
August of 2005, Dr. Roman Jovey, the then President of the Canadian Pain
Society, joined CPM as its Medical Director. Over the last 16 years, Dr. Jovey
has developed an international reputation in the field of chronic, non-cancer
pain, using pharmacotherapy. In addition to maintaining a private practice, Dr.
Jovey also consults with the pharmaceutical industry and educational
institutions on medical educational programs related to pain. He is also a
medico-legal expert for the Canadian Medical Protective Association on cases
related to opioids, pain and addiction. In his capacity as Medical Director, Dr.
Jovey oversees the clinical aspects of CPM and assists in the training of new
physicians.


The
Company has developed and launched a training program specifically designed to
educate emergency room physicians in chronic pain management.


CPM
more than doubled its patient visits from approximately 16,300 patients in 2006
to more than 34,700 in 2007. Plans are underway to further increase capacity in
2008 by training more doctors and thereby increasing capacity at the Company’s
11 pain management centers. During the first quarter of 2008, the number of
patient visits increased 51% to approximately 10,850, from 7,180 in the first
quarter of 2007.


INFUSION
SERVICES


In
March 2001, MedEmerg entered into an agreement with Schering-Plough Canada Inc.
(“Schering”) to become a coordinator for the community-based infusion of the
medication known as RemicadeTM. This contract capitalizes on the Company's access
to medical clinics for the treatment of patients with various inflammatory
disorders, including rheumatoid arthritis and Crohn's disease. The Company
delivered more than 15,000 infusions in 2007, a 49% increase over 2006 (10,100).
During the first quarter of 2008, the number of infusions increased
approximately 24% to more than 4,325 from 3,500 infusions in the first quarter
of 2007.


MedEmerg
expects continued growth for this service, as infusion services move from
institutional to community-based settings.


As of
March 31, 2008, the Company operated 25 virtual clinics across Ontario compared
to 22 clinics in March 2007. On an as-required basis, the Company rents space in
community-based medical clinics. MedEmerg’s team of infusion coordinators
arrange for patients to arrive at the clinic at a prescribed time and for a
physician and nurse to be available to attend to their needs. The RemicadeTM is
supplied by a local pharmacy.


RemicadeTM
is currently approved by Health Canada for six indications in Ontario:
rheumatoid arthritis, Crohn’s disease, ankylosing spondylitis, ulcerative
colitis, psoriatic arthritis and psoriasis. Once an indication is approved by
Health Canada, it is more likely that doctors will prescribe the medicine and
that insurance companies will provide reimbursement for the medicine.
Historically, more than 60% of infusions have related to Crohn’s disease and
rheumatoid arthritis. The Company expects growth related to RemicadeTM to level
off unless additional indications are approved by Health Canada or the Company
is awarded more clinic locations by Schering.


The
Company continues to look for additional products to offer through its infusion
clinics and the opportunity to open clinics in new locations.


26
  RESULTS OF
OPERATIONS


REVENUE


The
Company's revenue from continuing operations for the three months ended March
31, 2008 was $5,464,756 compared to $4,822,474 for the three months ended March
31, 2007.


The
increase in Revenue during the 2008 period over the comparable 2007 period of
approximately 13% was attributable to increases in the Pain Management and
Infusion Services divisions, partially offset by a decrease in the Staffing
solutions division. Divisional Revenues were:







Quarter
      Ended March 31,Division
            
            2008
            
            
            2007Staffing
      solutions
            
            $
            1,779,112
            
            
            $
            2,737,272Pain
      management
            
            
            2,360,398
            
            
            
            1,180,542Infusion
      services
            
            
            1,325,246
            
            
            
            904,660Total
            
            $
            5,464,756
            
            
            $
            4,822,474


Staffing
Solutions Revenues decreased 35% in the first quarter of 2008 relative to the
same period in 2007. In the third and fourth quarters of 2007 the Company failed
to resign two significant contracts. It will take several months to regain the
business lost at that time, and there can be no assurance that the Company will
be successful in those efforts.


Revenue
for Pain Management Services increased 100% in 2008 to $2,360,398, compared to
$1,180,542 in 2007. The increase relates to a 51% increase in patient visits
from approximately 7,180 in 2007 to more than 10,850 in 2008, a 5% increase in
the average patient billing and a strengthening of the Canadian dollar relative
to the US dollar of 17%.


The
Infusion Services business increased 46% to $1,325,246 from $904,660 in 2007.
The increase relates to a 24% increase in patient visits from approximately
3,500 in the first quarter of 2007 to 4,327 in the first quarter of 2008, and
further aided by a strengthening of the Canadian dollar relative to the US
dollar.


GROSS
MARGIN


Gross
Margin (revenue less physician and other direct costs) increased to $1,752,996
(44%) for the first quarter of 2008 from $1,219,660 for the same period in
2007.




Quarter
      Ended March 31,Division
            
            2008
            
            
            2007Staffing
      solutions
            
            $
            339,568
            
            
            $
            402,992Pain
      management
            
            
            667,077
            
            
            
            328,595Infusion
      services
            
            
            746,351
            
            
            
            488,073Total
            
            $
            1,752,996
            
            
            $
            1,219,660


The
Gross Margin from the Staffing Solutions business decreased from $402,992 during
the first quarter of 2007 to $339,568 in first quarter of 2008. The decrease of
16% was caused by the loss of certain low Gross Margin business during the
second half of 2007. Gross margin as a percentage of revenue increased from
14.7% during the first quarter of 2007 to 19.1% in the first quarter of
2008.


27
  Gross
Margin for Pain Management increased 103% from $329,595 in 2007 to $667,077 in
2008. The increase in Gross Margin corresponds to the 100% increase in revenues,
aided by a 2% increase in Gross Margin percentage.


The
Gross Margin for Infusion Services increased 53% to $746,351 in 2008 compared to
$488,073 in 2007 The increase corresponds to the 46% increase in Infusion
revenues, enhanced by 4% increase in Gross Margin percentage from 54% to 56.3%,
derived from increased operational efficiencies incurred as patient volumes
increase.


OPERATING
EXPENSES


Operating
expenses are comprised of both direct and indirect operating expenses. Indirect
expenses include corporate overheads, which are allocated to the divisions based
on gross margin earned by the division.


On a
divisional basis, after the allocation of corporate overheads, operating
expenses were as follows:







Quarter
      Ended March 31,Division
            
            2008
            
            
            2007Staffing
      solutions
            
            $
            330,165
            
            
            $
            429,657Pain
      management
            
            
            867,813
            
            
            
            562,286Infusion
      services
            
            
            376,091
            
            
            
            333,360Total
            
            $
            1,574,069
            
            
            $
            1,325,303


On an
overall basis, operating expenses increased 19%, or approximately $250,000, to
$1,574,069 for the first quarter of 2008 from $1,325,303 for the quarter ended
March 31, 2007. The increase was attributable to increased costs associated with
the Pain Management business of approximately $305,000; and Infusion Services of
approximately $43,000; partially offset by a reduction of expenses with the
Staffing Solutions business of approximately $100,000. The increase in costs
associated with the Pain Management of 54% relates to the increase in revenues
and gross margin of approximately 100%.


AMORTIZATION
AND INTEREST


Amortization
increased from $47,882 for the three months ended March 31, 2007 to $83,982 for
the first quarter of 2008. During the 2007, the Company increased its capital
spending on leasehold improvements and equipment associated with its Pain
Management centers. Consequently amortization costs increased in the first
quarter of 2008 compared to the first quarter of the previous
year.


For the
three months ended March 31, 20087, the Company earned interest net of bank
charges of $11,817, compared to $12,775 in the same period in 2007. Cash
balances in the first quarter of 2008 decreased relative to the cash balances in
the previous year resulting in less interest being earned. This was partially
offset by the strengthening of the Canadian dollar relative to the US dollar
over the same periods.


Interest
on long-term debt in the first quarter of 2008 decreased from $29,097 in the
first quarter of 2007 to $24,569. The decrease is associated with the increased
portion of interest charges allocated to discontinued
operations.


OTHER
EXPENSES


The
Company reported interest expense on the financial liability carried at
amortized cost of $1,435 for the first quarter of 2008 compared to $4,757 in the
same period in 2007. This expense arises as a result
of   the   Company   adopting   Handbook   Section   3855,   “Financial   Instruments
- Recognition   and


Measurement”.
The charge to earnings represents the amortization of an unrealized gain on
certain liabilities. This is a non cash expense.


28
  INCOME
TAXES


For the
three months ended March 31, 2007 and 2006, there was no provision for income
taxes payable due to the large tax loss carry-forwards available from previous
loss years. The Company pays income taxes in accordance with Canadian federal
and provincial income tax legislation. We do not expect to pay significant
corporate income tax in Canada in the foreseeable future because we have
significant net operating loss carry forwards for Canadian income tax
purposes.


DISCONTINUED
OPERATIONS


Family
Medical Clinics


For the
three month period ended March 31, 2008 the Company reported a loss from its
Family Medical Clinics of $1,047 compared to a loss of $52,042 in the same
period in 2007. The Company disposed of its Family Medical Clinics in 2007. The
loss in the current period reflects certain costs incurred in disposing of the
business.


Government
Health Services


During
the three month period ended March 31, 2008, the Company had a loss from
Government Health Services (the “DND Contract”) of $368 compared to a loss of
$4,858 in the first quarter of 2007. Certain residual costs have been incurred
on winding-up the DND Contract.


Healthcare
Consulting


In
February 2008, the division was restructured and the Company decided to not
pursue further health human resource planning contracts. Accordingly the results
of the Healthcare Consulting business have been reclassified as discontinued
operations. During the three month period ended March 31, 2008 the Company had a
loss from Healthcare Consulting of $85,694 compared to a loss in the first
quarter of 2007 of $55,722. Included in the current year loss is a one-time
restructuring charge of approximately $60,000 which was incurred and paid in the
quarter.


LIQUIDITY
AND CAPITAL RESOURCES


As at
March 31, 2008, the Company's cash position was $2,230,647 compared to
$2,291,005 at December 31, 2007.


The
reduction in the cash position of ($60,358) in the first quarter of 2008
resulted from (a) an increase in cash from operations of approximately $195,000;
(b) changes to non-cash working capital items of ($55,000); (c) a use of funds
of ($30,000) from discontinued operations, comprised of a loss of ($80,000) from
discontinued operations, net of amortization and a $50,000 increase in working
capital from discontinued operations; (d) ($40,000) used by the Company in
investing activities with respect to the purchase of property, plant and
equipment and other intangible assets; and (e) the repayment of long-term debt
of approximately ($50,000). The weakening of the Canadian dollar relative to the
U.S. dollar resulted in a foreign exchange loss of approximately ($80,000). The
investing activities largely related to funds used for the acquisition of
leasehold improvements at the Company’s Pain Management
centers.


The
Company believes that cash on hand is adequate to finance our working capital,
capital expenditure, and other obligations.


29
  OFF
BALANCE SHEET ARRANGEMENTS


The
Company is not a party to any off-balance sheet arrangements.


ADOPTION
OF ACCOUNTING POLICIES


Recently
Issued Accounting Pronouncements


In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" which is
effective for fiscal years beginning after November 15, 2007 and for interim
periods within those years. This statement defines fair value, establishes a
framework for measuring fair value and expands the related disclosure
requirements. The adoption of this statement, with respect to financial assets,
did not have a material impact on the financial statements of the Company. In
February 2008, the FASB issued FSP 157-2, which extends the effective date for
adoption
for non-financial assets, to fiscal years beginning after November 15, 2008 and
interim periods within those fiscal years. The Company does not expect the
adoption of this standard will have a material impact on its financial
statements.


In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” This standard provides companies
with an option to report selected financial assets and liabilities at fair
value. The Standard’s objective is to reduce both complexity in accounting for
financial instruments and the volatility in earnings caused by measuring related
assets and liabilities differently. This standard also establishes presentation
and disclosure requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar types of assets and
liabilities. This Statement is effective as of the beginning of an entity’s
first fiscal year beginning after November 15, 2007. Adoption on January 1, 2008
did not have an impact on the Company’s financial statements since SFAS No. 159
is consistent with Canadian GAAP.


In
December 2007, the FASB issued FASB No. 141R, Business Combinations(FASB
141R), which replaces FASB 141. FASB 141R applies to all transactions or other
events in which an entity obtains control of one or more businesses and requires
that all assets and liabilities of an acquired business as well as any
non-controlling interest in the acquiree be recorded at their fair values at the
acquisition date. Contingent consideration arrangements will be recognized at
their acquisition date fair values, with subsequent changes in fair value
generally reflected in earnings. Pre-acquisition contingencies will also
typically be recognized at their acquisition date fair values. In subsequent
periods, contingent liabilities will be measured at the higher of their
acquisition date fair values or the estimated amounts to be realized. The
Statement is effective for business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning on
or after December 15, 2008. The Company expects that FASB 141R could have an
impact on its future consolidated financial statements when effective, but the
nature and magnitude of the specific effects will depend upon the nature, terms
and size of the acquisitions consummated after the effective date of FASB No.
141R.


In
December 2007, the FASB issued FAS 160, which is effective for fiscal years
beginning after December 15, 2008. Under FAS 160, non-controlling interests will
be measured at 100% of the fair value of assets acquired and liabilities
assumed. Under current standards, the non-controlling interest is measured at
book value. For presentation and disclosure purposes, non-controlling interests
will be classified as a separate component of shareholders' equity. In addition,
FAS 160 will change the manner in which increases/decreases in ownership
percentages are accounted for. Changes in ownership percentages will be recorded
as equity transactions and no gain or loss will be recognized as long as the
parent retains control of the subsidiary. When a parent company deconsolidates a
subsidiary but retains a non-controlling interest, the non-controlling interest
is re-measured at fair value on the date control is lost and a gain or loss is
recognized at that time. Under FAS 160, accumulated losses attributable to the
non-controlling interests are no longer limited to the original carrying amount,
and therefore non-controlling interests could have a negative carrying balance.
The provisions of FAS 160 are to be applied prospectively with the exception of
the presentation and disclosure provisions, which are to be applied for all
prior periods presented in the financial statements. Early adoption is not
permitted. The Company does not expect this standard to have a significant
impact on its financial statements upon adoption.


30
  In
March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (“FAS 161”). FAS 161 requires enhanced
disclosures about an entity’s derivative and hedging activities and thereby
improves the transparency of financial reporting. The objective of the guidance
is to provide users of financial statements with an enhanced understanding of
how and why an entity uses derivative instruments; how derivative instruments
and related hedged items are accounted for; and how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance, and cash flows. FAS 161 is effective for fiscal years beginning
after November 15, 2008. . The Company does not expect this standard to have a
significant impact on its financial statements upon adoption.


On
January 1, 2008, the Company adopted Section 3862, “Financial Instruments -
Disclosures” of the Canadian Institute of Chartered Accountants (“CICA”)
Handbook. This Section replaces the disclosure requirements of the previous
Section 3861 “Financial Instruments - Disclosure and Presentation”and converges with
International Financial Reporting Standard IFRS 7. The new disclosure standard
increases the emphasis on the risks associated with both recognized and
unrecognized financial instruments and how those risks are managed. The new
presentation standard carries forward the former presentation requirements. The
Company’s disclosures now conform to this Section 3862 of the CICA
Handbook.


On
January 1, 2008, the Company adopted Section 3863, “Financial Instruments -
Presentation” of the CICA Handbook. This Section is consistent with the previous
CICA Handbook Section 3861, “Financial Instruments - Disclosure and
Presentation” which was based on International Financial Reporting Standard IAS
32. The Company determined that there was no impact to its financial statement
presentation from the adoption of Section 3863 of the CICA
Handbook.


On
January 1, 2008, the Company adopted Section 1400, “General Standards of
Financial Statement Presentation” of the CICA Handbook. Section 1400 was amended
to include the requirements for assessing and disclosing an entity’s ability to
continue as a going concern from International Financial Reporting Standard IAS
1. The Company determined that there was no impact to its financial statement
presentation from the adoption of Section 1400 of the CICA
Handbook.


On
January 1, 2008, the Company adopted Section 1535 “Capital Disclosures”, of the
CICA Handbook. This Section requires disclosure about capital and is harmonized
with recently amended International Financial Reporting Standard IAS 1. The
standard is applicable to all entities, regardless of whether they have
financial instruments. Entities are required to disclose information about its
objectives, policies and processes for managing capital, as well as its
compliance with any externally imposed capital requirements, where they may
exist. The Company’s disclosures now conform to this Section 1535 of the CICA
Handbook.


CRITICAL
ACCOUNTING POLICIES AND ASSUMPTIONS


The
preparation of consolidated financial statements in conformity with Canadian
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities during the reporting period. Significant
areas requiring the use of estimates relate to: (i) the reported amounts of
revenues and expenses, (ii) the disclosure of contingent liabilities, (iii) the
carrying value of property, plant, and equipment and the rate of amortization
related thereto, and (iv) accounting for income taxes. The Company evaluates its
estimates on an on-going basis. The Company states its accounting policies in
the notes to the audited consolidated financial statements and related notes for
the year ended December 31, 2007. These estimates are based on information that
is currently available to the Company and on various other assumptions that are
believed to be reasonable under the circumstances. Actual results could vary
from those estimates under different assumptions or conditions. The following
critical accounting policies affect the more significant judgments and estimates
used in the preparation of the Company’s consolidated financial
statements:
  31


•
              The
      Company maintains accruals for revenues, physician fees and other direct
      costs, salaries, benefits, and other costs. Management uses its judgment
      in determining accruals of revenues and expenses on Healthcare Consulting
      contracts, which are accounted for using the proportional performance
      basis. Accruals and estimates for Staffing Solutions contracts are of a
      short duration; that is, revenues and expenses are generally known before
      financial statements are finalized. Based on historical experience these
      accruals have proven accurate. Should changes occur in the future, it may
      be necessary to revise accrual
assumptions.


•
              The
      Company maintains an allowance for doubtful accounts for estimated losses
      resulting from fraudulent claims made by patients, the inability of
      corporate customers to make required payments, or as a result of a dispute
      in the invoiced amount. Fraudulent claims arise when patients seek medical
      care and provide an invalid health card for payment. The introduction of
      electronic medical records services, which pre-screen patients prior to
      services being rendered, is rapidly diminishing the Company’s exposure to
      fraudulent claims by patients. The adequacy of the bad debt allowance is
      determined by continually evaluating individual customer receivables,
      considering the customer’s financial condition, credit history and current
      economic and business conditions. If the financial condition of the
      Company’s customers were to deteriorate, resulting in an impairment of
      their ability to make payments, additional allowances may be required.
      Historically losses on uncollectible accounts have not exceeded allowances
      for doubtful accounts. As of December 31, 2007, the allowance for doubtful
      accounts was $40,946 (2006 -
$23,203).


•
              The
      Company is subject to various claims and legal actions in the ordinary
      course of its business. These matters include breach of contract or
      similar matters arising from contractual disputes. Hospital and healthcare
      facility clients may also become subject to claims, governmental inquiries
      and investigations and legal actions to which the Company may become a
      party relating to services provided by its professionals. From time to
      time, and depending upon the particular facts and circumstances, the
      Company may be subject to indemnification obligations under our contracts
      with our hospital and healthcare facility clients relating to these
      matters. Material pending legal proceedings brought against the Company
      are described in Note 9 of the financial statements included with this
      quarterly report on Form 10-Q. As mentioned, the Company is unable to
      determine its potential exposure regarding these lawsuits at this time.
      Similarly, the Company has other contingent liabilities that pertain to
      amounts potentially owing to government authorities. The Company continues
      to evaluate the probability of an adverse outcome and will provide
      accruals for such contingencies as required. The Company is currently not
      aware of any other such pending or threatened litigation or similar
      contingency that is reasonably likely to have a material adverse effect on
      it. If such claims arise, they will be evaluated on the probability of an
      adverse outcome and accruals will be provided, as required, at that
      time.


•
              The
      Company is required to estimate the amount of tax payable for the current
      year and the future income tax assets and liabilities recorded in the
      financial statements accounts for future tax consequences of events that
      have been reflected in its financial statements. Significant management
      judgment is required to assess the timing and probability of the ultimate
      tax impact. The Company records valuation allowances on future tax assets
      to reflect the expected realizable future tax benefits. Actual income
      taxes could vary from these estimates due to future changes in income tax
      law, changes in the jurisdictions in which the Company operates, the
      inability to generate sufficient future taxable income or unpredicted
      results from potential examinations or determinations of each year’s
      liability by the taxing authorities. Valuation allowances primarily relate
      to potential future tax assets arising from accounting amortization
      claimed in excess of tax depreciation and tax losses carried forward.
      Management must assess both positive and negative evidence when
      determining whether it is more likely than not that future tax assets will
      be recoverable in future periods. Based on this assessment, a valuation
      allowance must be established where management has determined, based on
      current facts and reasonable assumptions, that such future tax assets will
      not likely be realized by the Company. Realization is based on the
      Company’s ability to generate sufficient future taxable income. The
      Company intends to maintain a valuation allowance against its future tax
      assets until sufficient positive evidence exists to support its reversal.
      Changes in material assumptions can occur from period to period due to the
      aging of prior year’s losses, the cumulative effect of current period
      taxable income and other sources of positive and negative evidence. If
      these changes in material assumptions were to provide sufficient positive
      evidence, the Company could record the net benefit of $2.5 million
      associated with non-capital loss carryforwards and tax pools of $7.5
      million, or a portion thereof, as a recovery of income taxes in the period
      when realization becomes more likely than not and a corresponding increase
      in net future income tax assets.
  32


•
              The Company
      is required to make certain assumptions in determining the value of stock
      based compensation. Management has applied the Black Scholes model for
      determining the value of stock based compensation. Inherent in the
      application of the Black Scholes model are certain assumptions with
      respect to the future payment of dividends, the risk free rate of return
      and volatility of the stock. Based on these assumptions a charge to income
      is incurred when these instruments vest. Actual experience could vary
      materially from the assumptions made by
  management.





ITEM 3: QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK


There
are no financial instruments that are sensitive to changes in interest rates or
exposed to foreign currency exchange gains/losses.


ITEM 4 T: CONTROLS AND
PROCEDURES


Evaluation of Disclosure
Controls and Procedures: Our management with the participation of our
principal executive officer and principal financial officer has evaluated the
effectiveness of our disclosure controls and procedures (as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) pursuant to Rule 13a-15c under the Exchange Act as
of the end of the period covered by this report on Form 10-Q. Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that as of such date, our disclosure controls and procedures are
effective to provide reasonable assurance that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in applicable SEC rules and forms.


The
Company’s disclosure controls and procedures are designed to provide assurance
of achieving their objectives, and the Company’s chief executive officer and
chief financial officer have concluded that these controls and procedures are
effective at the “reasonable assurance” level. The Company believes that a
control system, no matter how well designed and operated, cannot provide
absolute assurance that the objectives of the control system are met, and no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been
detected.


Changes in Internal Control
over Financial Reporting: There was no change in our internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that occurred during the period covered by this report on Form
10-Q that has materially affected, or is reasonably likely to materially affect
our internal control over financial reporting.


PART
II: OTHER INFORMATION


ITEM 6.
EXHIBITS




Exhibit
      31.1
            Rule
      13a-14(a)/15d-14(a) Certification of the Chief Executive Officer of the
      Company.Exhibit
      31.2
            Rule
      13a-14(a)/15d-14(a) Certification of the Chief Financial Officer of the
      Company.Exhibit
      32.1
            Section
      1350 Certification of Chief Executive Officer.Exhibit
      32.2
            Section
      1350 Certification of Chief Financial
  Officer.


33
  SIGNATURES


Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.




MED-EMERG
      INTERNATIONAL INC. (Registrant)Principal
      Executive OfficerBy:
            /s/
      Dr. Ramesh ZachariasDate:  May
      12, 2008
            
            Ramesh
      Zacharias Chief Executive OfficerPrincipal
      Financial and Accounting Officer:By:
            /s/
      William DanisDate:  May
      12, 2008
            
            William
      Danis
              Chief
      Financial Officer


34